Performance pay for public service chief executives has been ended, State Services Minister Chris Hipkins has announced today.

Until now public service chief executive remuneration packages have included the potential to receive a discretionary payment of up to 15 per cent for exceptional performance.

Hipkins has also signalled a move to set lower pay rates when chief executives are appointed and together the moves could save up to $4 million by 2021/2022.

"The decision to remove performance pay, in addition to dialling-back pay settings, including the appointment and re-appointment of chief executives at lower points in the remuneration range, will put the brakes on the growth rate of chief executive pay," said Hipkins.


"These moves will reduce the total potential forecast expenditure on chief executive remuneration by up to $4 million by 2021/2022.

"We want a public service with an international reputation for excellence that is motivated by a spirit of service to the community."

The move comes a day after Prime Minister Jacinda Ardern announced a year-long pay freeze for MPs while a new pay-setting system is devised. Currently MPs' pay is based on a formula and the Remuneration Authority has no discretion. MPs were about to get a 3 per cent pay rise but that will not now occur.

Hipkins acknowledged the State Service Commissioner Peter Hughes and the chief executives for entering into the agreement over chief executives' pay.

He said it showed leadership by the commissioner.

All chief executives of core public service agencies, whose remuneration was set by the commissioner, agreed with and understood the rationale behind the new approach, Hipkins said.

They had all signed new individual employment agreements.

The Government was committed to addressing pay levels across the public service, Hipkins said.


"Part of this is paying women equally and addressing pay levels for public servants at the bottom and top end.

"We have a plan to close the gender pay gap, we have introduced a living wage for all low-paid public servants and now we're removing performance pay for chief executives."

The commissioner's actions have resulted in a flattening of the rate of growth of pay levels at the top end, although the full effect is yet to be realised," Hipkins said.

"International research shows that individualised performance pay is not an effective incentive for higher performance for complex roles such as these.

"The Government also believes that performance pay is counter-productive to achieving the collaborative team-based approach and collective leadership that is critical to achieving better outcomes for New Zealanders."